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Federal student loan payments resume in October and borrowers may face a thicket of acronyms, rules and changes to their loan servicers as they try to pay their bill. Payments have been on pause for three years.

Ysa Quiballo

A new Biden plan takes the air out of ballooning student loan interest

Federal student loan borrowers in the Chicago area can get significant relief from exploding interest thanks to a repayment plan launched by the U.S. Department of Education this week. The agency estimates borrowers who qualify will see their payments drop by over 40% on average.

The program could benefit more than 20 million Americans and arrives as borrowers scramble to pull together funds for their first payments in three years. Payments resume in October.

The U.S. Supreme Court struck down President Joe Biden’s student loan cancellation program earlier this summer, but his administration has continued to introduce new forms of relief for borrowers.

The new Saving on a Valuable Education, or SAVE, plan out this week caps monthly payments based on income and family size, like previous federal income-driven repayment plans. But it goes a step further and wipes away interest that isn’t covered by monthly payments.

For instance, if a borrower’s $30 monthly payment doesn’t cover all $50 of their monthly interest, the remaining $20 in unpaid interest would be erased. Previously that $20 would pile up and accumulate interest, and cause loan balances to grow even for borrowers making regular payments.

“The nightmare of making payments and watching your loan balance get bigger and bigger will finally be over,” U.S. Secretary of Education Miguel Cardona told reporters this week.

Under the old plan borrowers repaid on average $10,956 for every $10,000 borrowed, according to Cardona’s department. Under the new SAVE program the department estimates they would pay back an average $6,121 per $10,000 borrowed.

And more borrowers will be eligible to make no payments at all. The new plan expands the amount of income exempt from payments from 150% to 225% of the federal poverty line. The federal education department estimates more than 1 million more low-income borrowers will qualify for $0 monthly payments under this change.

Those with federal undergraduate and graduate subsidized and unsubsidized loans are eligible for the new program. Parents who took out PLUS loans on behalf of their children are not, but are eligible for other income-driven repayment programs.

Borrowers are encouraged to apply to the SAVE plan as soon as possible. A pandemic-era pause on interest and payments is coming to an end in just a few weeks.

Below are some more tips as you prepare for payments to resume in October.

Don’t panic: You may qualify for reduced payments or no monthly payments at all

Borrowers can apply for a federal Income-Driven Payment plan, like SAVE, that caps their monthly payments at 10% of their discretionary income. Experts encourage people to start applying now. Application processing can take some time.

Discretionary income is any earnings exceeding 225% of the federal poverty line. That’s $67,000 a year for a family of four. Borrowers earning less than that make no monthly payments. After 20 years of payments, any remaining debt will be canceled.

Under changes scheduled to go into effect over the next year, the cap on payments will be lowered to 5% of discretionary income. Borrowers with less than $12,000 in federal student loans would have remaining debt canceled after 10 years of payments.

Earlier this summer the federal government announced more than $1.3 billion in student loan cancellation for 28,450 Illinois residents to compensate for previous errors in administering income-driven repayment plans. Some servicers had not been tracking borrowers’ progress towards cancellation.

Check if you’re eligible for Public Service Loan Forgiveness

Borrowers who have worked for nonprofits and/or government agencies may be able for relief from student debt through the Public Service Loan Forgiveness program. Eligible borrowers can get their federal loans canceled after 10 years of payments.

While previous administrations processed applications for PSLF at a glacial pace and often threw them out, the Biden administration has streamlined the process by allowing for e-signatures and application tracking.

Since October 2021, more than 615,000 people have had their federal student loans canceled through PSLF. That debt totaled about $42 billion. Under the Trump administration, about 7,000 borrowers received relief through the program.

But the application still takes time to be processed, so advocates urge borrowers to apply now.

Use the Loan Simulator at StudentAid.Gov

It’s the choose-your-own-adventure book for student debt. The simulator has different portals for borrowers struggling with payments, borrowers looking for the best repayment options and borrowers considering taking on additional student debt.

Users can explore ways to pay off loans faster or to lower their monthly payments, including some of the assistance programs mentioned above.

Do NOT ignore your loans

Advocates say borrowers may be tempted to bury their heads in the sand. But ignoring your loans will not stop interest from accruing — and may cause it to balloon.

“It’s time to prepare,” said Kristin McGuire from Young Invincibles, a nonprofit that advocates for young adults. Interest “will get turned on in September. Your first payment will likely be in October.”

Identify your loan servicer

During the pandemic a handful of major companies, including Navient and Granite State, stopped administering federal student loans. As a result, the Consumer Financial Protection Bureau estimates 4 in 10 student loan borrowers will have to make payments to companies they may never have heard of.

McGuire advises borrowers to log onto their profiles at StudentAid.gov to find the name of the company currently administering their federal student loans.

“Start checking in and ensuring that you understand how much you owe and when your payments will be” due, McGuire said.

Update your contact information

Get in touch with your loan servicer to make sure they have your latest contact information. Update your details on your StudentAid.Gov profile as well. That will increase the likelihood that you receive communication about your loans, including information about when your first payment is due.

“What we’ve been telling borrowers is to make sure that everything looks good on their account,” said Sabrina Calazans from the Student Debt Crisis Center. “To make sure that if there are communications being sent to them, that they are receiving them and are being made aware of any changes. Especially with so many servicers changing, so many people being assigned a new one, it’s critical that folks know what is going on when it comes to their account.”

Get help

Are you struggling to understand communication from your servicer because it’s littered with acronyms? This glossary of financial aid terms from the federal education department may help.

Or maybe your servicer is saying you owe money even though you qualify for no monthly payments through an income-driven repayment plan. Maybe you’re not sure how you’re going to cover your monthly loan payment when you also have rent to make and a family to feed.

A few states, including Illinois, have student loan ombudsmen borrowers can reach out to for help.

“There are also really great advocacy organizations who are trusted organizations,” said McGuire, “like the Student Debt Crisis Center or Student Borrower Protection Center, who can give timely and accurate information to consumers and borrowers.”

Commiserate with others

Living with student debt can be isolating.

Ami Schneider, a Schaumburg resident and student loan borrower, said she experienced that when she first graduated from college and bill collectors were calling her constantly.

“I remember how hopeless I felt, how desperate I felt, how just depressed I was,” Schneider said. “I felt like I was a burden on my family. I started having all of these internal dialogues with myself where I started shaming myself for that debt. And it really became a very isolating sort of feeling.”

That feeling lessened, Schneider said, once she found a community of borrowers — first online on Reddit, then in person when she joined The Debt Collective, an organization of student debt activists. She’s now an organizer with the group.

“When I found out that it wasn’t just me and started actually organizing with other debtors, that made me feel hopeful,” she said. “That made me feel like we can do something about this.”

Share your story with us

We want to hear from local borrowers to inform future reporting. What questions do you have about your loans? What challenges are you facing in paying them back? Please consider filling out a brief survey here.

Lisa Philip covers higher education for WBEZ, in partnership with Open Campus. Follow her on Twitter @WBEZeducation and @LAPhilip.

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